1.

Extension of Sunset for Dividend Paid Deduction for Project Financing Vehicles (“PFVs”) in Relation to Corporate Income Tax

Pursuant to Article 104-31 of the Special Tax Treatment Control Law, a qualified PFV that declares 90% or more of its distributable profits as dividends is eligible for a tax benefit under which the declared dividend amount is deductible for the PFV’s corporate income tax purposes from taxable income of the concerned fiscal year for which dividend declaration is made (the so-called “Dividend Paid Deduction”).

However, the foregoing provision is a sunset clause which is currently set to expire as of December 31, 2025, meaning that the Dividend Paid Deduction was allowed only for fiscal years ending on or before December 31, 2025. The sunset for the Dividend Paid Deduction is to be extended for an additional three years, resulting in the extension of the sunset to remain in effect through December 31, 2028.

There has been a considerable amount of industry interest in whether such tax benefit sunset for PFVs will be extended. If the sunset indeed is extended as outlined in the Reform Plan, many of the uncertainties that have surrounded the ongoing real estate development projects undertaken through PFVs will be substantially resolved.
 

2.

Restoration of Corporate Income Tax Rates

The current corporate income tax rates are as follows: (i) a tax base of up to KRW 200 million - 9%; (ii) a tax base from KRW 200 million to KRW 20 billion - 19%; (iii) a tax base from KRW 20 billion to KRW 300 billion - 21%; and (iv) a tax base in excess of KRW 300 billion - 24%. The Reform Plan proposes to increase the tax rates for each bracket by one percentage point, to 10%, 20%, 22%, and 25% respectively, thereby restoring them to the corporate income tax rates applied back in 2022.